In his tilt at reviving Japan’s fortunes, Prime Minister Shinzo Abe has vowed to take on some of the country’s more intransigent social monoliths: gender inequality, the agriculture lobby and the labour market being high on the list. Perhaps most quixotic of all, though, is the attempt to convince Japanese households to move their money out of savings and invest instead in Japanese stocks.

I added the emphasis and for very good reason.

It's profoundly annoying to see the FT perpetuating a myth that there is any difference between saving in a bank deposit account or government bonds and buying shares. There is not. They are all savings vehicles.

Buying a share is not an investment. Investing requires the creation of productive capacity. Shares don't do that. They are just a way of acquiring a right to a potential future income stream, just as bank deposit entitles the holder to a future rate of interest.

If Abe Shinzo got facts right then maybe the Japanese would believe him.

If the FT did its economic credibility might improve.

But given the error I have every sympathy for those Japanese who are reluctant to take the risk. If those selling the idea of share saving and even the financial media get such basic things wrong why should ordinary people pick up the consequences?

7 Responses

Take your point but the ft was just using the ordinary language terms rather than the technical economic terms. Ie. It’s perfectly normal to say ‘do you invest in the stock market?’ without implying that this is a productive activity for the economy.

The reason? Because repairs were becoming more costly and housing people in the private sector and B & B is exensive for the City. So yes, we’ve spent some of our reserves but now the repair costs are coming down steeply enabling us to make more savings and move that cash to other areas of the business where the process continues. And we have more rental income coming in from the new nomes we’ve built which will pay for themselves. These are assets as well as liabilities that will become assets when the mortgage to build them is paid of in year 25.

We call this ‘spend to save’ = investment – because the ‘return’ is real cash that can either go back into the reserve or be used to invest again.

In our parent local authority, they just sit back and refuse to spend on assets – and rather see them ran down and then wonder why they get such a poor deal when they wish to dispose of them in order to get a receipt which apparently they need because they are (guess what) short of cash. It’s crazy.

As for Abe, I hate it when I see a country’s key politicians work on behalf of their financial sectors. Real investment works wonders if you just think it through – even in such times as this.

I have to say though, it is gettng harder in the social housing world – but not because of the investment itself but because of the conditions imposed by the Tories – the 1% off rent income, the sale of high value stock and the reallocation of Homes & Communities Agency affordable housing grant to the preposterous ‘Help to Buy’ private sector scheme – all of which are not welcome and just cut off good business management in our sector off at the knees.

Surely buying shares that are newly emitted counts as investment? That corresponds to a company asking people to give it money to do more of whatever they are doing – in return for a share in the company’s future profits and decision-making. While no new productive capacity is created by those shares being traded between third parties subsequently, the first sale from the company to shareholders increases the company’s capital and allows it to expand its activities.
Do you see any chance of differentiating first sales (which are investments) and subsequent shares trading (which is not) in commonly used language and perhaps even in legal treatment to encourage the first, say by a lower rate of Capital Gains Tax for the first five years?

The problem with today’s economic setup.I ask you to imagine yourself as CEO in charge of a billion pounds,you look around for the best place to invest in and find that the London property market is growing by 20% a year.So you invest the billion pounds and gain 20%,as a result your shareholders give you a 10% pay increase and all is rosy but the consequences of these transactions is that no homes are built or jobs created. I believe it would be better to spend the billion pounds on building homes and creating jobs,yes the billion pound fund wouldn’t grow by 20% and the CEO wouldn’t get such a large pay increase but wealth and income would be more evenly distributed.